This is a guest post by Anis Uzzaman and Tom Maxim. Uzzaman is the CEO of Fenox Venture Capital, a San Jose-based firm focused on early-stage, international investments. Maxim is an associate at the firm.

The U.S. venture capital industry is at a crossroads. Market over-saturation has led to inflated valuations and poor investment outcomes. To tackle this problem, venture capitalists have increasingly searched for markets outside of the U.S. In this respect, China and India loom large. In China though, new ventures are threatened with regulatory laxity, while unreliable infrastructure plagues Indian investments. Many have overlooked the investment ecosystems of Southeast Asia and a resurgent Japan.

The Where: Singapore and Indonesia

We like to call Southeast Asia, “New Asia.” These countries have large populations, even larger economies, and are creating dynamic communities of entrepreneurs. Founders in this region, we’ve seen, are increasingly willing to take on risk and innovate.

Singapore, due to its strategic location, top-notch infrastructure and political stability, is the gateway to Southeast Asia. It’s a major financial hub, regarded by the World Bank as the friendliest place in the world to do business. Just as U.S. entrepreneurs prefer to incorporate their companies in Delaware, founders in Southeast Asia, Australia, New Zealand, and even India often opt to register their companies in Singapore. The Singapore government has been providing startups with substantial support, including office space, training, mentoring, and incubation programs, along with tax and funding incentives.

Indonesia, meanwhile, is on track to place among world’s 10 largest economies by 2050 according to McKinsey. With a population of 240 million, it’s the fourth most populous country in the world. The country’s middle class will grow from 45 million to 135 million by 2030. It’s poised to become the world’s third largest mobile market after India and China.

Southeast Asia as a whole has been increasing regional integration while improving its regulatory and business environment. New entrepreneurship communities have emerged in cities like Bangkok, Kuala Lumpur and Jakarta. Software developers cost a fraction of those in developed markets. More critically, these communities are attracting seasoned entrepreneurs who have honed their skills in mature markets. Arip Tirta, for example, spent seven years in Silicon Valley as an investor at Hercules Growth Capital Management before heading home to Jakarta to found UrbanIndo, a real estate marketplace.

E-commerce looks particularly promising in the region. Zalora, a Singapore-based fashion e-commerce store born out of Germany’s Rocket Internet, raised $100 million last month. Other prominent players include Kaskus, an Indonesian forum that offers an eBay-like marketplace, and Reebonz, a Singaporean fashion company. As we learned from the emergence of eBay in the U.S., e-commerce preludes the consumption of other technologies. As consumers get comfortable making purchases online, other industries like advertising technology and analytics will gain traction.

Japan

Long a hub of innovation, Japan is repositioning itself for another burst of invention. The Japanese government launched a $107 billion fiscal-stimulus package popularly known as “Abenomics” (after Prime Minister Shinzo Abe) to address deflation, tepid growth and the country’s structural dependence on deficit spending. Devaluation of the Yen has created favorable conditions for foreign investors, who now enjoy a greater bang for their buck when buying shares in a domestic stock market that has risen significantly since November. To accelerate growth and attract foreign investment, a special financial zone has been planned to offer tax incentives and simplified paperwork for foreign companies.

Often early adopters of technology, the Japanese have been browsing the Internet on their mobile phones for years, far ahead of other developed countries. The high purchasing power of the average Japanese citizen permits such habits. Driving the creation of new ventures is the availability of skilled labor, fueled by an education system ranked fourth in the world.

The creativity of Japanese game designers, meanwhile, has produced video game classics like Sonic the Hedgehog and Mario Bros. Puzzles and Dragons, a hit mobile game by GungHo Entertainment, is grossing $2-3 million in daily sales. At the other end of the spectrum, there is a massive opportunity for companies that target Japan’s aging population. By 2060, more than 40% of the country will have passed retirement age. Specialty products for the elderly, like home monitoring systems and robot aides are expected to surge in demand.

The How: Norms and Nuances

Asian culture is often a major roadblock for foreign investors, as each country has unique social norms. Take the exchange of business cards for example, which is an important start to any business meeting in Japan, Korea, Taiwan or Hong Kong. Instead of tucking your host’s business card into the back pocket of your pants, try receiving it with both hands, studying its content intently, then placing it carefully in your cardholder or front shirt pocket.

In Japan, seating is determined by the status of the participants. As a guest, you will be directed to the appropriate seat while the host sits at the head of the table. You should stand at your seat and sit only when asked to do so by the host. In a restaurant setting, always order the same drink as the host, and certainly drink only after the host takes his first sip. As the meeting adjourns, take care to leave your seat only after the host has stood up.

A friend of ours was once invited to a dinner with the Japanese startup he intended to invest in as an angel. Not only did he seat himself at the head of the table, but he also kindly passed around food–with amateurish chopstick skills. Puzzled that the deal went sour, considering all the terms were agreed on prior to the meeting, a local friend revealed that only the remains of one’s family are passed by chopsticks in a funeral ritual.

Social encounters take a twist in Indonesia where foreigners are often surprised that making friends comes before talking business. Friendly discussions about one’s family, hobby or food preference comes first, while business details are left to subsequent meetings. Foreigners may view this as a waste of time, but the concept of harmony and relationships are valued over the milestones of a project. Yet tales of Westerners who ask for actionable items at a first meeting with a client and deliverables by the next are common. Don’t be surprised if the client becomes perpetually unavailable in such instances.

Bottom line: It takes more than a checkbook to invest in Asia. Asian customs mean you need to be trusted by the locals before entering business agreements. That trust is only gained through sincerity and sustained presence. Pay attention to cultural nuances and be sure to dedicate resources for the long haul. Otherwise, just stick to the Valley.

Breaking Into Asia As A Venture Investor: The Where And How – Click To Tweet

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